The respondent submitted that in the US, there have been attempts to distinguish between transfer taxes such as stamp duty and property transfer taxes, and taxes imposed on gains resulting from a transfer. The respondent cited that authorities of S&M Enterprises v the United States, Court of Appeals for the Federal Circuit (United States), 199 F.3d 1317 where the court stated that if the tax is based solely on a gain, and not on the size of the transfer, it is not a transfer tax. The respondent also cited the case of 995 Fifth Avenue Associates v New York States Department of Taxation and Finance Court of Appeals for the Second Circuit (United States), 963 F, 2d 503 where the court emphasised that if the transaction yields no gain, there is no tax due. The nature of gains tax is different from stamp taxes and documentary transfer taxes.

The respondent also cited cases that have been addressed in UK courts. In Carreras Group Limited v Stamp Commissioner, Privy Council of the United Kingdom [2004] S.T.C 1377 the court pointed out that transfer tax is an ad valorem on the consideration for the property transferred, whereas the capital gains tax is a tax on capital gains.   The respondent objected to the applicants’ reference of the words “any tax” in Article 23.5 to have a wide coverage. The applicants had leaped to the conclusion that any tax clearly covers income tax on a capital gain accruing on an assignment or transfer. The respondent argued that this was a result of confusion in the applicants between the nature and the base of the charge. The respondent argued that Article 23.5 would be manifestly unlawful under Uganda law if the applicants’ interpretation of it as an exemption is accepted.

The respondent submitted that under the Constitution of Uganda a tax may be imposed through a law passed by Parliament. Likewise a tax can only be varied if a law confers such power on the person or authority purporting to grant the waiver. The respondent cited Articles 79, 99 and 152 of the Constitution of Uganda. The respondent contended that the said provisions make it clear that the executive does not have the capacity to waive the law. The respondent cited that authorities of the Heritage case, K.M. Enterprises and others v Uganda Revenue Authority HCCS No. 599 of 2001 and Kampala Nissan Uganda Limited v Uganda Revenue Authority Civil Appeal No. 7 of 2009 to support its arguments.   The respondent submitted that discretionary tax exemptions are no longer allowed under the ITA after July 1997.

Exemptions are now statutorily provided. The ITA amended the 1974 Income Tax Decree and the 1991 Investment Code Act. The respondent contended that through the adoption of the 1995 Constitution and the ITA, Uganda eliminated discretionary tax exemptions which were replaced with statutorily provided ones.   The respondent contended that the applicants’ argument that the 1993 PSA aimed at bringing companies into high risk investment involving enormous sums of money is not correct. When the 1993 PSA is compared to the 2001 PSA one can conclude that income tax exemptions are unlawful. It shows that Article 23.5 only excluded taxes and fees imposed on the transfer and not taxes on income resulting from a transfer. The respondent further contended that at the time Article 10 of the 1993 PSA was prepared, discretionary tax exemptions were lawful. After 1993 the GOU took a series of policy reforms which eliminated discretionary exemptions. The respondent contended that Article 11 of the EA2 PSA provided for all central taxes to be paid in accordance with the law.

The respondent submitted that the applicants’ argument that the Minister could grant an exemption under S.3 of PEPA is defective. The respondent averred that the term “connected with” must be interpreted in the context of the phrase “incidental to or connected with the foregoing.” The respondent cited the authority of Scottish Widow Plc v RCC (supra) already cited by the applicants. It contended that thus “connected with” must be read as part of the phrase “incidental to or connected with.”   The respondent also contended that the applicants’ argument ignores that the ITA is a specific statute governing income tax in Uganda and was adopted after the PEPA to consolidate and amend the law relating to income tax. It also contended that the ITA does not need to repeal or amend S. 3(e) of the PEPA. The respondent argued that the minister cannot have unbounded powers under S. 3 of the PEPA as it may have startling results. The respondent referred to an admission by the applicant’s own witness Mr. Inch, the Head of Tax that “the constitution is clear that an increase in tax is by an Act of Parliament”. Hence S. 3 of the PEPA does not confer power under Article 152 of the Constitution on a minister to waive or vary a tax.

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